Chancellor George Osborne meets setter operator Dean Thompson during a visit to manufacturing company Sertec in Birmingham (PA)

He said that without more reductions in welfare, the Government would be forced to increase taxes or make further reductions to vital public services.

The Chancellor added: "So when you see people on the telly who say that welfare can’t be cut anymore - or, even worse, promising they will reverse the changes we’ve already made and increase housing benefit - ask yourself this: what public services would they would cut instead?

"What taxes they would put up in their place? Or would they borrow and spend more, and risk our country’s economic stability again?

"This is what I mean when I say Britain has a choice.

"The truth is there are no easy options here, and if we are to fix our country’s problems, and not leave our debts to our children to pay off, then cutting the welfare bill further is the kind of decision we need to make."

Mr Osborne’s speech prompted an angry response from Nick Clegg, the Deputy Prime Minister, who accused the Chancellor of wanting to “remorselessly pare back the state”.

Mr Clegg said that the Conservatives were making a "monumental mistake" in seeking "cuts for cuts' sake" and placing the burden of future deficit reduction on benefit claimants alone.

Mr Osborne said that 2014 will be "the year of hard truths" and that "Britain faces a choice".

"Do we say: the worst is over; back we go to our bad habits of borrowing and spending and living beyond our means – and let the next generation pay the bill?

"Or do we say to ourselves: yes, because of our plan, things are getting better.

"But there is still a long way to go – and there are big, underlying problems we have to fix in our economy."

He added: "We’ve got to make more cuts. £17 billion this coming year. £20 billion next year.

"And over £25 billion further across the two years after. That’s more than £60 billion in total."

The Government is on course to borrow £111 billion this year, almost double the £60 billion it was forecast to borrow when Mr Osborne took office in 2010.

The national debt will hit £1.2 trillion by April, and is due to carry on rising, hitting £1.5 trillion by 2018. It means the Treasury is spending £50 billion a year on debt interest to Britain’s lenders.

Despite the gloomy predictions, Mr Osborne said that Britain is "back in control of its destiny" because of the decisions taken by the Coalition.

However, he warned of a "dangerous new complacency" from Labour politicians and warned that they would "squander" what has been achieved by the Government since 2010.

Ed Balls, the shadow chancellor, said: "George Osborne is desperate to stop talking about the cost-of-living crisis on his watch. But that won't stop working people from doing so as they are on average £1600 a year worse off under the Tories and prices are still rising faster than wages.

"Nor will the Chancellor admit the reason why he is being forced to make more cuts is because his failure on growth and living standards has led to his failure to balance the books by 2015."